Atlanta's Office Sublease Market Has Grown By Nearly 800K SF In 2020
Office sublease availability is on the rise in Metro Atlanta, with 160K SF added to the market since the start of June.
At the end of 2019, the supply of office space available for sublease was 3M SF. Since then, 794K SF has been added to the market, 20% of which came online in the last week, according to CBRE figures.
The city's nearly 3.89M SF sublease supply is above its normal level, CBRE Senior Research Analyst Toby Jorgensen said. Since June began, the region's sublease supply has already grown by 4.4%.
"Maybe the rest of June will kind of cool off," Jorgensen said. "It is eyebrow-raising, though."
In a healthy office market, Atlanta's sublease rate generally hovers between 2.8M SF and 3.5M SF, he said. Once that supply tops 5M SF, it starts to affect the overall office market, including direct leasing activity and the rental rates landlords can fetch for prime space, Jorgensen said.
“It's tough for me to say I'm concerned. It's only a week,” he said. "Now, if that continues, then yes."
A rise in the supply of sublease space is a common occurrence during downturns, as companies that lay off employees or halt planned hirings are left with unused space. For landlords, that space becomes part of a pool of competition they face in leasing, and sublease space usually costs less.
During the Great Recession in 2009, sublease space in Atlanta peaked to 5.9M SF, according to CBRE. By 2014, sublease supply dropped to 1M SF. It has been slowly creeping up again since then, but Jorgensen and other Atlanta office players say they don't expect a deluge of companies downsizing in the near future.
“I think an uptick in sublease space later in the year is certainly possible, but I don't see it as a major factor in the office market in the same way it was in 2000 or 2009,” Pierce said. “I have spoken with a number of large corporate users, and while many of them are rethinking the way they use space, I have not heard much talk about reducing their footprints in the short term.”
Atlanta has experienced a major loss of jobs due to the coronavirus pandemic. As of April, Atlanta's nonfarm employment stood at 2,561,600, a 9.4% decline from the previous year, according to the U.S. Bureau of Labor Statistics. The majority of those job losses affected food services and restaurant workers as well as the hospitality sector, which combined lost more than 130,000 jobs. The metro economy also saw a loss of 48,200 professional and business service jobs, an 8.9% increase, mainly in the employment services industry, according to the BLS.
Jorgensen noted that the majority of the new sublease supply is coming from small office users. The average contiguous sublease size is 9,800 SF, he said, with no big blocks of space hitting the market yet. CBRE's data doesn't reflect the potential sublease space Macy's may dump into the market after the retailer backed out of plans to locate a major IT hub in Midtown.
Given that these job losses were a result of a black swan event, not due to faults in the financial system, office job losses may be more minimal during this recession, JLL Executive Managing Director Adam Viente said.
“I also think to offset [layoffs], you see companies that their space is either too dense or they're in a benching or hoteling concept that just doesn't work in a post-COVID world,” Viente said. “We are talking with users right now about expanding. And they're talking about expanding right now, not because they hired 30 new [employees], but because they're a little bit too dense.”
CORRECTION, JUNE 9, 3:15 P.M. ET: CBRE provided incorrect data for a previous version of this story. Sublease space increased by only 160K SF since June 1 instead of more than 300K SF. This story has been updated.